The effect of Sarbanes-Oxley

The Hackett Group has an interesting finding on the effect of Sarbanes-Oxley — you know, the corporate governance bill passed in the wake of the 2002 corporate scandals. The results are pretty interesting. [How interesting can that be?–ed. Definitely less interesting than speculation about possible future roles for Kristin Davis, but more interesing than your average post about corporate governance.] Where was I? Oh, yes, here’s a summary of the findings:

Largely as a by-product of their Sarbanes-Oxley compliance efforts, companies have dramatically improved the reliability of their financial forecasting over the past year, according to 2004 Book of Numbers research into world-class finance performance from The Hackett Group…. Findings from The Hackett Group’s 2004 Finance Book of Numbers show that more than two thirds of all companies said they were now confident with their financial forecasting and reporting outputs. Only 9 percent of average companies made the same claim just a year ago. But the improved forecasting capabilities have not come easily, and companies are also struggling with Sarbanes-Oxley compliance. In a reversal of long-term trends, companies were for the most part unable to reduce their overall finance costs, and monthly closing cycles have actually extended slightly over the past two years. Median companies now spend 1.08 percent of revenue on finance, according to Hackett. While that number has come down by 43 percent since Hackett began its research in 1992, median companies have seen little to no net cost reductions over the past few years. Companies are still finding ways to cut costs, but increased spending on compliance is largely offsetting these savings, according to Hackett. In addition, Hackett’s research showed that a long-term trend towards shorter closing cycles saw a clear reversal in 2004, with both median and world-class companies now taking more than a week to close their books each month.

While perusing the Hackett web site, I came across another Hackett study on the outsourcing (both onshore and offshore) of finance operations:

A total of 74 percent of the companies surveyed by Hackett do not currently outsource any complete finance processes. In addition, 60 percent state that their outsourcing levels have not changed in the past three years. When asked to break down their current use of outsourcing of four major finance processes (accounts payable, accounts receivable, general accounting and payroll), only payroll showed any significant number of companies (26 percent) using outsourcing. Another five percent of the companies indicate that they outsource accounts payable, while no companies outsource accounts receivable or general accounting. Looking forward, most companies report that they are unlikely to outsource any of the four processes in the next three years. “There’s no question that outsourcing is a very hot discussion topic right now in the finance world. But our research provides compelling evidence that perception far exceeds reality,” said Hackett Senior Business Advisor Penny Weller. “Companies may be comfortable outsourcing sub-processes such as rekeying of vendor invoices or other data, check printing, or managing freight payments. Yet when companies have already expended significant time and energy to centralize complete processes such as accounts payable and accounts receivable within shared services, they are unlikely to consider outsourcing these processes today unless the economic benefits of doing so become overwhelmingly clear.”